Reasons Why Investing in A Home Equity Loan is Risky

List: Posted: 12/10/10

There is no such thing as a risk-free investment. From investing in the stock market, to investing in silver, to investing in home equity, anytime you invest in something, you run the risk of losing money.


Making a home equity investment is perhaps the most risky investment of all. Home equity is the difference between your home's market value and how much money you owe on your home loan. You might need money to make another big purchase, such as a tuition payment for your child, or a new car. If you borrow against your home in the form of a home equity loan, the bank gives you a loan, and your home becomes collateral. If you default on your home equity loan, you lose your home.


Investing in home equity is simply a bad idea. First of all, if you decide to sell your home, you may be asked to pay off your home equity loan in full. If you've taken out a large sum of money, paying it off at once would be nearly impossible.


Perhaps the most obvious reason that investing in a home equity loan is a dangerous business strategy is because you run the risk of losing your home. You may be able to afford extra money on your mortgage every month right now, but what if you get sick and have to take time off from work? What if you lose your job? If you don't have a large savings, you might not be able to make those home equity loan payments, and you might just lose your home as a result. 

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        The material in this article is for informational purposes only. The views expressed in this article are those of the author and do not necessarily reflect the views or opinions of Local.com. See Additional Information

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